“But with Europe stumbling from crisis to crisis, the German public has grown uneasy about keeping the gold abroad. Some even argue the world’s second biggest bullion reserve may be needed to back a new deutschmark, should the euro zone break up.“ – Reuters, 2-9-2017
“Germany has a stronger relationship with gold than most nations. The country’s experience with hyperinflation between 1919 and 1923, during the years of the Weimar Republic, is ingrained in the national consciousness. Gold, above all, stands for stability” – Financial Times, 11-10-2017
Germany completed its scheduled transfer of national gold reserves from the New York Fed and the Bank of France in 2017. It will now leave 1236 tonnes at the New York Fed and another 432 tonnes in London. The remainder of its 3378-tonne national holding will be stored in Frankfurt. The repatriation transfers to Frankfurt were completed three years ahead of schedule.
With respect to the gold left at the Fed, Bundesbank’s Carl-Ludwig Thiele told reporters: “We have a lot of discussions about (U.S. President Donald) Trump, regarding implications on monetary policy, macroeconomics, etc., but we trust the central bank of the U.S.”
Thiele’s confidence in the Federal Reserve brings to mind an old story about Germany’s relationship with the Federal Reserve and the storage of its gold reserves. When Hjalmar Schacht, head of Germany’s central bank in the 1920s, visited the New York Fed he asked to see Germany’s gold stored in its vaults.
“Strong**,” wrote Schacht in a 1955 autobiography, “was proud to be able to show us the vaults which were situated in the deepest cellar of the building and remarked: ‘Now, Herr Schacht, you shall see where the Reichsbank gold is kept.’” Storage staff went off to retrieve the gold. “At length,” Schacht goes on, “we were told: ‘Mr. Strong, we can’t find the Reichsbank gold.’” To which Schacht replied: “Never mind; I believe you when you say the gold is there. Even if it weren’t you are good for its replacement.”
One need presume that nearly 100 years later, the level of trust conveyed by Schacht remains in place. It is unlikely that Germany would depart the euro anytime soon and back a new Deutschmark with gold. Having an asset set aside, though, that is detached from erratic national currencies in this day and age is a wise move for the prudent nation-state – just as it is for the prudent private investor.
** New York Fed president at the time, Benjamin Strong
Repost from 2/10/2017, updated October, 2019. The Financial Times article linked at the top of the page tells the fascinating inside story of Germany’s gold repatriation.
“Sometimes it’s hard to tell whether inflation or deflation is the bigger threat. When you can’t tell what to do, plan for both. A diversified portfolio that includes allocation to investments that fare well during inflationary periods and investments that fare well during deflationary periods can provide a measure of protection regardless of what happens in the economy.”
USAGOLD note: A gold diversification can go a long way in protecting against either or both and all the hybrids in between.
Please see: Black Swans, Yellow Gold – How gold performs during periods of deflation, chronic disinflation, runaway stagflation and hyperinflation.
Repost from July, 2018
“By way of confession and truth to podcast – let’s see, I confessed I was born in 1946 and that makes me, like, 37? Okay, I was born in 1946 and I was bullish on gold in 1945. I hope that puts my view on this into context. I’m chronically, sometimes profitably, but certainly very nearly continuously, well-disposed to the legacy monetary asset. I think that so many arrows point to it in the present day. I think it will become the beneficiary of – I’m talking about gold now – gold will become the beneficiary of so many trends. From the tinkering and the unprecedented experimentation of our central bankers’ fiscal profligacy – I’m starting to sound moralistic – I think that paper money is in a secular bear market and that the institution of managed currency will be seen to be a species of pretense, if not outright intellectual fraud. And I use that word advisedly. And I think that come the dropping of the scales from the eyes of the money holders of the world, gold will do better against almost every currency.” – James Grant/Interest Rate Observer
USAGOLD note: The interview linked above is well-worth your time if you want to better understand the bond market and what might lie ahead for investors. “[S]omething to bear in mind,” says Grant, “is that nobody issues a press release at the start of an inflationary cycle.”
Repost from 3-13-2020
New note: Grant was certainly prescient in this interview. Gold has not only done better against “almost every currency,” it has achieved all-time highs versus a number of them over the past six months.
“The durable market rise that began March 6, 2009, is as intoxicating as the Lehman anniversary should be sobering: Nothing lasts. Those who see no Lehman-like episode on the horizon did not see the last one.”
USAGOLD note: This time around no one can claim that they weren’t warned or that they didn’t see it coming as was universally the case in 2008. Now the warnings come almost daily.
Repost from August 19, 2018
“If man is not to do more harm than good in his efforts to improve the social order, he will have to learn that in this, as in all other fields where essential complexity of an organized kind prevails, he cannot acquire the full knowledge which would make mastery of the events possible. He will therefore have to use what knowledge he can achieve, not to shape the results as the craftsman shapes his handiwork, but rather to cultivate a growth by providing the appropriate environment, in the manner in which the gardener does this for his plants.
There is danger in the exuberant feeling of ever growing power which the advance of the physical sciences has engendered and which tempts man to try, ‘dizzy with success’, to use a characteristic phrase of early communism, to subject not only our natural but also our human environment to the control of a human will. The recognition of the insuperable limits to his knowledge ought indeed to teach the student of society a lesson of humility which should guard him against becoming an accomplice in men’s fatal striving to control society – a striving which makes him not only a tyrant over his fellows, but which may well make him the destroyer of a civilization which no brain has designed but which has grown from the free efforts of millions of individuals.”
Frederich von Hayek, 1974 (Speech in acceptance of the Nobel Prize for economics)